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Could The Markets Crash Again? | Zero Hedge

Could The Markets Crash Again? | Zero Hedge.

This is the trillion-dollar question. From a common sense perspective, the simple answer is “absolutely!”

Since 1998, the markets have been in serial bubbles and busts, each one bigger than the last. A long-term chart of the S&P 500 shows us just how obvious this is (and yet the Fed argues it cannot see bubbles in advance?).

Moreover, we’ve been moving up the food chain in terms of the assets involved in each respective bubble and bust.

The Tech bubble was a stock bubble.

The 2007 bust was a housing bubble.

This next bust will be the sovereign bond bubble.

Why does this matter?

Because of the dreaded “C word” COLLATERAL.

In 2008, the world got a taste of what happens when a major collateral shortage hits the derivatives market. In very simple terms, the mispricing of several trillion (if not more) dollars’ worth of illiquid securities suddenly became obvious to the financial system.

This induced a collateral shortfall in the Credit Default Swap market ($50-$60 trillion) as everyone went scrambling to raise capital or demanded new, higher quality collateral on trillions of trades that turned out to be garbage.

This is why US Treasuries posted such an enormous rally in the 2008 bust (US Treasuries are the highest grade collateral out there).

Please note that Treasuries actually spiked in OCTOBER-NOVEMBER 2008… well before stocks bottomed in March 2009.

The reason?

The scrambling for collateral, NOT the alleged “flight to safety trade” that CNBC proclaims.

WHAT DOES THIS HAVE TO DO WITH TODAY?

The senior most assets backstopping the $600 trillion derivatives market are SOVEREIGN BONDS: US Treasuries, Japanese Government Bonds, German Bunds.

By keeping interest rates near zero, and pumping over $10 trillion into the financial system since 2007, the world’s Central Banks have forced investors to misprice the most prized collateral backstopping the entire derivatives system: SOVEREIGN BONDS.

SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?

Another collateral scramble begins… this time with a significant portion of the interest rate derivative market (over 80% of the $600 TRILLION derivative market) blowing up.

At that point, rising yields is the last thing we need to worry about. The assets backstopping a $600 trillion market themselves will be falling in value… which means that the real crisis… the crisis to which 2008 was the warm up, will be upon us.

This is why Central Banks are so committed to keeping rates low. This is also why all Central Bank policy has largely benefitted the large financial institutions (the Too Big To Fails) at the expense of Main Street…

THE CENTRAL BANKS AREN’T TRYING TO GROW THE ECONOMY, THEY’RE TRYING TO PROP UP THE FINANCIAL INSTITUTIONS’ DERIVATIVE TRADES.

To return to our initial question (is this just a temporary top in stocks or THE top?), THE top is what we truly have to watch out for because it will indicated that:

1)   The Grand Monetary experiment of the last five years is ending.

2)   THE Crisis (the one to which 2008 was just a warm up) is beginning.

 

For a FREE Investment Report outlining how to prepare for another market crash, swing by: www.gainspainscapital.com

 

Best Regards

 

Phoenix Capital Research

Could The Markets Crash Again? | Zero Hedge

Could The Markets Crash Again? | Zero Hedge.

This is the trillion-dollar question. From a common sense perspective, the simple answer is “absolutely!”

Since 1998, the markets have been in serial bubbles and busts, each one bigger than the last. A long-term chart of the S&P 500 shows us just how obvious this is (and yet the Fed argues it cannot see bubbles in advance?).

Moreover, we’ve been moving up the food chain in terms of the assets involved in each respective bubble and bust.

The Tech bubble was a stock bubble.

The 2007 bust was a housing bubble.

This next bust will be the sovereign bond bubble.

Why does this matter?

Because of the dreaded “C word” COLLATERAL.

In 2008, the world got a taste of what happens when a major collateral shortage hits the derivatives market. In very simple terms, the mispricing of several trillion (if not more) dollars’ worth of illiquid securities suddenly became obvious to the financial system.

This induced a collateral shortfall in the Credit Default Swap market ($50-$60 trillion) as everyone went scrambling to raise capital or demanded new, higher quality collateral on trillions of trades that turned out to be garbage.

This is why US Treasuries posted such an enormous rally in the 2008 bust (US Treasuries are the highest grade collateral out there).

Please note that Treasuries actually spiked in OCTOBER-NOVEMBER 2008… well before stocks bottomed in March 2009.

The reason?

The scrambling for collateral, NOT the alleged “flight to safety trade” that CNBC proclaims.

WHAT DOES THIS HAVE TO DO WITH TODAY?

The senior most assets backstopping the $600 trillion derivatives market are SOVEREIGN BONDS: US Treasuries, Japanese Government Bonds, German Bunds.

By keeping interest rates near zero, and pumping over $10 trillion into the financial system since 2007, the world’s Central Banks have forced investors to misprice the most prized collateral backstopping the entire derivatives system: SOVEREIGN BONDS.

SO what happens when the current bond bubble bursts and we begin to see bonds falling and yields rising?

Another collateral scramble begins… this time with a significant portion of the interest rate derivative market (over 80% of the $600 TRILLION derivative market) blowing up.

At that point, rising yields is the last thing we need to worry about. The assets backstopping a $600 trillion market themselves will be falling in value… which means that the real crisis… the crisis to which 2008 was the warm up, will be upon us.

This is why Central Banks are so committed to keeping rates low. This is also why all Central Bank policy has largely benefitted the large financial institutions (the Too Big To Fails) at the expense of Main Street…

THE CENTRAL BANKS AREN’T TRYING TO GROW THE ECONOMY, THEY’RE TRYING TO PROP UP THE FINANCIAL INSTITUTIONS’ DERIVATIVE TRADES.

To return to our initial question (is this just a temporary top in stocks or THE top?), THE top is what we truly have to watch out for because it will indicated that:

1)   The Grand Monetary experiment of the last five years is ending.

2)   THE Crisis (the one to which 2008 was just a warm up) is beginning.

 

For a FREE Investment Report outlining how to prepare for another market crash, swing by: www.gainspainscapital.com

 

Best Regards

 

Phoenix Capital Research

Ponzi World (Over 3 Billion NOT Served): The Promise of the Joker and the Fool

Ponzi World (Over 3 Billion NOT Served): The Promise of the Joker and the Fool.

Blogs like this one are a total fucking waste of time. We are a handful of hardcore realists reading each others’ blogs and reinforcing what we already know. All while the stoned masses sit at home fat and happy watching the Kardashians, hypnotized by Dow Casino ticking higher with every passing day. After 2008, the comfort-seekers at large curled up into the fetal position and have remained that way ever since. Regardless, how can we possibly warn the oblivious masses about today’s economic risks when it’s all doomed to collapse under the weight of its own moral depravity? Basic logic dictates that the majority can’t all get out of a house of cards intact. The Idiocracy at large is totally bought in and sold out to the promise of the jokers and fools who run this globalized catastrophe, you know, the same ones who collapsed it the last time…

There is nothing any bearish blogger can do to bring about the collapse of this fabrication that global thought dealers are not already doing. They collapsed world markets in 2008 and they are fully capable of doing it again all on their own. These people went to the top schools in the U.S., the UK, Canada – across the world. They know what they are doing. They generated the 2008 clusterfuck, profited from it, and now are guiding us straight ahead to the next catastrophe. Who was at the helm of the Federal Reserve in 2006, 2007 and 2008?  Bernankenstein of course. And who until this very month has steadfastly been Wall Street’s largest leveraged banker? Bernankenstein. He saved us from a catastrophe that he himself subsidized. Soon he will hand over the reins to Janet Yellen, who has degrees from Yale and Brown, two more Ivy Leagues. Surely she can finish the job and pile drive this fucker straight into the ground. Yellen admits that she didn’t see the 2008 financial crisis coming – apparently giving subprime loans to illegal immigrants and watching Goldman invent the self-imploding CDO didn’t raise any alarm bells with her. So she is definitely the right person to finish the job. Speaking of which, the self-imploding CDO that took out AIG and Lehman was invented at Goldman Sachs under current chairman Loyd Blankfein (see: Ayn Rand Gone Wild), who was Harvard roommate to the Bennie Bernank. Fortunately Goldman was bailed out by that other Harvard/Goldman alum Hank Paulson as Treasury Secretary (and Bernanke). The Credit Default Swap (CDS) was invented by JP Morgan/Cambridge superstar Blythe Masters who was just let go from JPM for her alleged role in an energy market manipulation scheme a la Enron. The CDS may well be the ultimate financial weapon of mass destruction (WMD) – still out there working its magic. Meanwhile, Central Bankster Mark Carney, another Harvard/Goldman Sachs alum, just finished inflating Canada’s massive real estate bubble and has now moved to the UK to help top off their real estate bubble. And if only Larry Summers, Dean of Harvard, had been picked as Fed chairman, surely this clusterfuck would already have collapsed by now. It was Summers who suggested just last year that the secret to improving a nation’s credit rating was to borrow more not less. Genius ! Summers also of course was a key proponent of repealing Glass-Steagall, the Depression-era law meant to preclude another financial crisis. The other key proponent behind Glass-Steagall repeal was Robert Rubin (Goldman/Citigroup/Yale/Harvard). Obama/Bush, two more Harvard frat boys gleefully sowing the seeds of anarchy. This is all well in hand. Clearly, we need to sit back and wait. There is nothing we can do to end this shit show that the dumbfucks from Harvard and other Ivy League schools are not doing on their own. No offense, but I highly doubt if anyone reading this blog could collapse the world financial system – I doubt if I could. So the longer we doom forecasters warn of risks and otherwise prescribe caution, the longer this circus will continue. Think about it. Harvard dunces will end this globalized catastrophe once and for all. We just need to be a bit more patient and give them time to work.

Bernanke fixed Wall Street by giving them $3 trillion to play with…

Fed balance sheet (blue line) with Dow Casino. Fast, slow, fast. Sounds familiar…


Apparently we’re still waiting for the melt-up to occur. Sure, whatever…


Nasdaq 100 – 70% retracement
Speaking of melt-ups…


And Priceline (Nasdaq in background)
Top performing S&P stock – Up 2200% in five years
Are we in a bubble? I can’t tell. Although the last time this stock went parabolic I lost a shit ton of money shortly thereafter that’s all I know. It’s a good thing I’m not bitter, especially towards Central Banksters and their continued market manipulations…


IPO Casino
Twitter (below) priced at $26 and recently traded at $75 for a 200% gain in 6 weeks. Its price to sales ratio is a ludicrous 75. Apple’s price/sales ratio is 3. Twitter’s profit margin is -25% so it sells dollar bills for 75 cents and yet its market cap is greater than that of 80% of S&P companies. It’s the most overvalued piece of shit on the entire planet. 

Meanwhile, per IBD on Friday, “Investor’s Intelligence (sentiment) bulls v.s. bears ratio is in the silly zone” That’s because there are no bears left except for a handful of bloggers engaged in a mutual admiration circle jerk…


Ode to Ponzi Capitalism and Securitization
In a big FU to customers, BusinessWeek informs us last week that companies with the poorest customer service have outperformed in the stock market. There is actually negative correlation between customer satisfaction and stock performance. Time Warner Cable is the reference company (appearing on the list multiple times); however, Facebook is at the very bottom of the ratings. 

Fadebook: Shitty service and abuse of customer data privacy
The strategy is working – Booyah Skidaddy !

 

Boom-era credit deals poised for comeback – FT.com

Boom-era credit deals poised for comeback – FT.com

 

Last month Citigroup placed an unusual job advertisement. The bank was seeking an analyst able to crunch the numbers on an obscure financial security: synthetic collateralised debt obligations.

Four weeks later, job applicants would find the position filled. Such has been the clamour among investors for the higher yields from higher-risk products that big banks including Citi, JPMorgan Chase and Morgan Stanley are turning again to the more esoteric parts of the financial markets. Hence the need to hire.

Synthetic CDOs are a type of structured credit product blamed by critics for exacerbating the global financial crisis. Wall Street manufactured billions of dollars of these securities at the peak of the credit boom. They have all but disappeared since.

The road to recovery, though, has been a bumpy one for synthetic products. The stigma of buying into such boom-era assets remains strong for investors, particularly when leverage – or borrowing – is used in an effort to enhance returns.

“Investors have learnt the use of leverage can create losses when they are not expected,” says Ashish Shah, head of global credit at AllianceBernstein. “Investors have to be conservative when applying leverage to less liquid assets.”

That has prompted some banks to tweak the structure of new synthetic deals. Citi has begun marketing an unusual $100m senior slice of a four-year synthetic CDO to investors.

Since their creation in the early 2000s, synthetic CDOs have allowed investors to make amplified, or leveraged, bets on portfolios of credit ranging from subprime mortgage bonds to corporate loans. The products buy derivatives known as credit default swaps and divide them into “tranches” with varying risk and seniority.

Finding investors to buy the most senior pieces of such deals has tended to be difficult because the top slices generate the lowest yields. So banks invented a so-called “leveraged super senior” tranche, which allowed investors to pay only a fraction of the senior tranche’s total value and, by doing so, juice their returns.

But leveraged super seniors caused massive losses during the crisis as declines in the market value of the products triggered contract clauses that required investors to stump up billions of dollars of collateral or walk away.

To assuage investors’ concerns about possible losses, Citi has changed the structure of its proposed senior synthetic CDO deal, which is tied to a pool of investment-grade corporate credits.

Instead of asking investors to put up more collateral as the market value of the underlying portfolio falls, investors will have to pay up only if actual losses on the portfolio exceed 15 per cent. “It’s very easy to call it a leveraged super senior but what it really is, is a vanilla super senior plus financing,” said an executive at a rival bank.

While synthetic CDOs with a “full capital structure” – including junior, “mezzanine” and senior tranches – have yet to return to the market, banks have been selling “bespoke” or “single-tranche” CDOs in recent years. Citi, in particular, has been offering customised single-tranche deals notable for attractive-looking yields.

Such unrated deals are typically tied to corporate credit, rather than mortgages. Average trades have two-year terms instead of the 10-year deals that were common before the crisis. The bank is believed to have sold as much as $1bn of these bespoke single-tranche CDOs so far this year.

“They [Citi] have been reasonably active in junior parts of the capital structure,” says one bank executive. Selling off the bank’s senior credit risk to new investors is “the best way for them to risk manage” overall credit exposure.

It is unclear whether Citi will be able to find buyers for its proposed deal, which it has been marketing to potential investors including big pension funds and endowments for a month in Europe and the US, according to people familiar with the transaction.

Some big institutional investors have criticised the product for yielding only 3.5 per cent – or about one percentage point more than regular investment-grade bonds. They reckon the deal should yield about 5 per cent.

Investors have learnt the use of leverage can create losses when they are not expected– Ashish Shah, AllianceBernstein

That could prove a stumbling block. A previous attempt to resuscitate a pre-crisis-like, “full capital structure” CDO by JPMorgan and Morgan Stanley failed after the two banks were unable to line up investors to take on the most senior part of the deal.

Still, people familiar with the deal say Citi could prepare the ground for a wider revival in demand for structured credit in the new year, once investors have a clearer view of interest rates and when the Federal Reserve starts to pare back its $85bn-a-month bond-buying programme.

Bankers are hopeful that, once the dust settles from the Fed “taper”, investors will feel more comfortable buying investment-grade credit at higher interest rates and, moreover, leveraging the returns against a low risk of high-quality companies going bust. Citi, for its part, believes a super senior revival will be the story of 2014.

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  1. ReportJP Stanley | December 4 11:14am | Permalink

    As a bank diluting away 90% of its shareholder value by its previous encounter with structured products, Citi is uniquely qualified to pioneer the area. I wonder if “Citigroup” will be pronounced with a sizzle soon enough.

  2. ReportSapien | December 4 10:52am | Permalink

    Sensationalism.

 

At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan) | Zero Hedge

At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan) | Zero Hedge.

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